Why do so many investors start with buy to let? I suppose buy to let is the foundational entry point for property investing. Most people understand the concept behind buying a flat or a house and then renting it out to a tenant.
One of the great things about buy to let is that there are different ways of doing it (and I have covered this in other videos so I’ll only do a quick summary here). You can buy a house or a flat and you can put a tenant in and then that can be it.
Or, if you want to do it the way I do it, you can find a house or a flat which needs some work doing do it so you can add some value then you can let the property, then you can refinance it and you can get a whole chunk of money back out on the refinancing.
That is a concept that works really well in many property strategies, and so one of the benefits of starting with buy to let is cutting your teeth and trying that as a concept and working out how you can do it for yourself and getting the proof that you may need for your mind set that it actually does work.
But there are other practical reasons why starting with buy to let is a good thing. First and foremost, many of the other property strategies require more cash. For example, if you are going to develop a HMO it can cost £40,000-£60,000 to convert a property into a 5 bedroomed HMO with on-suite bathrooms. I know that because I’ve done it. Whereas, if you are buying a cheap house and you are putting a tenant in, that is the cheapest way of getting into property.
I am not saying it is cheap in an absolute sense, because even a cheap buy to let property is going to cost many £10,000s, but in a relative sense a buy to let is a cheap way of trying it, to see whether you like it, getting used to the idea of dealing with agents, getting used to dealing with solicitors, using it to build your team. And if you don’t like it then you haven’t taken on £100,000s worth of debt and it is a more manageable amount of money to get you started, before you move on to the strategies like HMOs and commercial conversions.
Another practical reason why starting with buy to lets can be good is because when you do start to move on to other strategies like HMOs many of the specialist HMO lenders will like you to have experience already, they would like you to have a couple of properties under your belt, they would like you to have a couple of buy to lets to show that you can be a competent investor and a competent landlord. Not all lenders require that, but many do. So, it increases your access to the finance if you have already got the experience and if you have already got the experience through buy to lets.
There are many reasons why new investors start with buy to lets. Buy to let is a great strategy. I know that there are a lot of different strategies out there at the moment and there is a lot of buzz around a lot of those strategies, and those strategies are good and I am not saying they are not, but as a foundational ‘building your wealth and creating a portfolio’ buy to let is fantastic and I would suggest that you should do buy to let alongside any other strategy and that you wouldn’t replace buy to let with another strategy. Even if I was taking on a different strategy I would keep the buy to let going.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
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